Fed’s Favorite Lowball Inflation Gauge is Red-Hot, Not Seen in Decades, Even Without the “Base Effect”

The majestic inflation overshoot has arrived.

By Wolf Richter for WOLF STREET.

The Fed’s favorite inflation measure, generally the lowest inflation measure the US government provides — tracking a lot lower than even the Consumer Price Index which already understates actual inflation — and therefore our lowest lowball inflation measure, and therefore the Fed’s favorite inflation measure, was released this morning, and it was a doozie, despite being the most understated inflation measure the US has so far come up with.

The Personal Consumption Expenditures Price index without food and energy, the “core PCE” index, jumped by 0.7% in April from March, after having jumped by 0.4% in March from February, according to the Bureau of Economic Analysis today. Those two months combine into an annualized core PCE inflation rate of 6.4%, meaning that if price-increases continue for 12 months at the pace of the past two months, then the annual inflation would be 6.4% as measured by the lowest lowball measure the US has.

This was the highest two-months annualized rate since 1985. And it shows to what extent inflation has suddenly heated up in March and April.

Over the past three months – so April, March, and February – the annualized increase of core PCE inflation was 4.9%, the highest since 1990.

The annualized PCE index eliminates the legitimate issue of the “Base Effect” that is now getting trotted out to brush off the inflation data (I discussed the Base Effect in early April to prepare for what would be coming).

The Base Effect applies only to year-over-year comparisons. In March last year, the core PCE price index dipped by 0.1% from February, and in April it dipped by 0.4% from March. So comparing today’s PCE index to that dip in April (the lower “base”) would include the Base Effect.

The BEA also publishes an annualized version of the PCE price index in its quarterly GDP report. In Q1, this annualized PCE price index increased by 3.7%. But being quarterly, it didn’t include the spike in April.

The three-months annualized core PCE eliminates the Base Effect. It shows the pace of inflation over the past three months and projects what it would looks like if it continues for an entire year. It was 4.9%, the highest since 1990:

Year-over-year and not annualized, core PCE jumped by 3.1%, the biggest increase since 1992. This includes the Base Effect. But it also includes another effect, in the opposite direction: Last fall’s very low PCE core inflation rate waters down the current red-hot spurt of inflation. So this metric overstates the current rate of core PCE inflation because of the base effect; and it understates the current rate of PCE inflation because of the very low inflation in the fall last year. Both effects combined probably balance each other out:

So this core PCE is the lowest lowball inflation measure that the US has concocted so far. And it is the one that the Fed uses as its yardstick for its “symmetrical” 2% inflation target. The green line in the chart above indicates that 2% target.

“Symmetrical” for the Fed now means that inflation can run a little higher than 2% for a while after it ran lower than 2%. The Fed has not indicated exactly how far core PCE can overshoot the 2% target and for how long it can overshoot it. But it said it would be “patient.”

My gut tells me that some of the crazy price increases we have been seeing recently will subside eventually, such as the WTF used vehicle price spikes, and the price increases in new vehicles amid stories that even GM and Ford dealers are selling trucks at or above sticker, and amid data showing that these price increases generated all-time record gross profits for dealers.

My gut tells me that some of this will calm down, that buyers will eventually have had enough of this, and sales will dwindle at those prices, and prices would have to come down. But they will likely not go back to where they’d been, but remain significantly higher, and eventually start rising again from there.

And while this is going on, services will pick up the pace, such as airline ticket prices, or rents, or healthcare expenses, or a million other services. This movement has now been kicked off. Some of the price spikes will be “temporary,” then giving up some of the gains, before resuming their climb, while others will take their place and spike in a game of inflation whack-a-mole that the consumer is going to pay for.

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  281 comments for “Fed’s Favorite Lowball Inflation Gauge is Red-Hot, Not Seen in Decades, Even Without the “Base Effect”

  1. whatbubble says:

    The company I work for builds industrial heat exchange products, think of air conditioners the size of storage containers that are typically installed in food or energy production. Next week will be the 4th price increase since December and represent a 30% to 50% product price increase over that duration. Even with this unprecedented climb in pricing we are behind the curve compared to metal and component input costs which in many cases have doubled, tripled or 500+%. In some cases paying more cannot fix the issue with component scarcity delaying unit delivery. Honestly it’s getting scary but in a different way than last year but no less stressful for those of us trying to keep things running.

    • nick kelly says:

      Makes the point that inventory of inputs on hand will not necessarily be priced at their original cost, but on cost of replacement.
      In other words, inflation is partly retroactive. So the Fed has to deal with inflation created months ago, that is only now becoming apparent. This doesn’t seem to apply to services. If it did, it would be like being told your cable bill went up, as of six months ago.

      • whatbubble says:

        Buying computers and electronic parts are a great example of MSRP being reverse joke if you will. High end CPUs 50+% above manufacturer price at release and graphics cards at 200% or 300% and often eBay being the only route to avoid backorder.

    • Brant Lee says:

      Meanwhile, are wages up 30 to 50% there? Today’s joke.

      • whatbubble says:

        For me, no. Hourly workers are getting increases but that’s just trying to keep up with area business. Living in a rural community we have quite a few lumber mills and right now they are basically ATM machines and paying market rate for employees to work all shifts.

        I believe and support increased wages especially at the bottom and mid income ranges. My point here is the “all at once” increase of input costs and wages definitely complicates the decision making process.

    • kam says:

      I am a manufacturer of cedar shingles and lumber. Prices are up more than 50% from 18 months ago. But costs of all inputs are also skyrocketing.
      There are no competent, skilled people for most positions. And training becomes providing a free education so that they can go to work somewhere else.
      Parts? A Caterpillar oil pressure sending unit, a cost of around $30, 10 years ago is now $300.
      All inline electric fuel pumps are MADE IN CHINA. I have now put 5 of these pieces of junk in one of my excavators. The costs of installation and downtime exceed the cost of the Chinese crap by a factor of 10.
      So cheap Chinese parts actually increase inflation, not lower costs.

      • nick kelly says:

        Dropped in my old buddies at the hydroponic (pot grow) shop and the entire floor of a 12 X 14 floor was covered with large Chinese ‘Hurricane’ fans, all returned by growers. The shop was slowly getting paid under warranty but the whole thing was a headache. A grow fan runs 24- 7 and this requires industrial grade. Note: it CAN be made in China but wholesale customer must supervise all. Honeywell has a good fan that I think is made in China to their specs, including the gauge of the winding wire.

        I have a treasured fan, the old made in Taiwan Box fan that is prob 30 years old.
        Not a grow fan! The Chinese version is still 20 by 20 inches, but is half the depth, with flattened not cupped blades, windings like hair, puts out half the air, and MAY last 2 years.
        A high ranking CCP guy, maybe Xi before he became above such, has specifically given their fan guys a slap.

        • NBay says:

          By Taiwan box fan do you mean old “muffin fan”? Biggest I ever saw was maybe 12″, but I bought them like you 20-30 years ago from DigiKey catalog and they ran forever, as they should, being designed in all sizes, 1″ and up, to protect electronics…some 120VAC and some 5 or 12v DC.

      • Lynn says:

        Better investments sometimes end up saving money. You might also ask yourself why people would want to go somewhere else after training. A good employee is certainly a good investment.

        • kam says:

          Lynn
          You do not know the valley. But thanks for the advice.
          I have great employees. Most have worked with me for 10 to 30 years.

      • Lisa_Hooker says:

        “And training becomes providing a free education so that they can go to work somewhere else.”

        Interestingly, if you pay your new trainees a competitive wage after they’re trained they won’t leave. Plus they’ve learned stuff you want them to know, as opposed to the random skills of folks off the street.

      • NBay says:

        So is it “Chinese junk” or “American corp planned obsolescence”????

        Tip: (won’t help poor Kam much, though)

        Sister’s washing machine agitator came off. I figure it was a “fuse” protecting probably cheap shit plastic agitate to spin transmission. Managed to lock it back on with her help (two flat screwdriver sized push tabs, while pushing down, all simultaneously) and told her to run NOTHING but small loads to reduce stress.

        So far, so good. About a year, now. And, yeah, it has a very well known American name brand, forgot which.

        • NBay says:

          Kam, as a kid I used to cut redwood shakes out of an old fallen and busted (“timber butcher” faller, was our term) 6 ft redwood.
          Used “L” shaped blade and handle tool, hit with mallet, after putting wire around it. Got $1 a bolt from dealer, who picked up.

        • NBay says:

          Oh yeah, washing machine now about 9 years old. I figure design life on those at around 7-8 years max, now. Bastards.

        • NBay says:

          Along that “corporate bastards” line, our big electronics junkyard store has vanished, as have most of the auto junkyards, and even the day-old bread store.

          I’m CERTAIN they are bought out/closed by corp CEO types who ONLY want people buying NEW, and no DIY or cheap day old bread allowed. They’d rather destroy it all like the brand new homes bulldozed in Victorville during GFC, or thousands of new Honda 600’s dumped in ocean off Seattle….tax write offs.

          Pretty SICK system we have here. Elected positions aren’t quite yet ip for sale like in the City of London, but with Citizens United and all the dark money channels they might as well be

  2. Gerry says:

    The only constant is that if you think things are bad now, eventually they will get worse. Too many crooks feeding at the trough.

    • timbers says:

      “Things are going to get worse before they get worse” – Lily Thomlin

      • JRM says:

        Bad Is Never Good Until Worse Happens. Danish proverb

      • Swamp Creature says:

        From “When Money Dies”

        Things got worse in 1921 in Weimer Germany. Then they got even worse in 1922. No one thought they could get any worse, but they did. In 1923 the German mark was worth zero. Everyone’s savings was wiped out. Everyone’s pension was wiped out. In 1924 a new currency was issued.

    • DawnsEarlyLight says:

      What do you expect when we lock everyone out of revenue generation for a extended period, and then ‘fix’ it with an accelerant perfect for runaway inflation!

      • Wondering says:

        Agreed. Think of this: the Fed has a dual mandate of 1) price stability and 2) low unemployment. So……..Why should the Fed print money on the excuse that Inflation is “Transitory”, but not recognize the same “Transitory” nature of unemployment that should cause it NOT to print money.

  3. ru82 says:

    I agree with your analysis.

    Also many prices are sticky. Even if the FED thinks the current price increases are transitory and will ease…. rarely drop much if at all.

    The price of coffee drop over 50% from 2017 to 2019 yet Starbucks never lowered the price of a cup of coffee.

    Sugar and Corn dropped in price over 50% the past 5 to 8 years yet a can of soda at my local vending machine went up in price from $1.25 to $2.00 during that time frame.

    Producers pass the cost on to the consumer but they will drop the prices much when the raw materials drop.

    Sure some things have seen such huge price increase they are not sustainable as people will find substitutes.

    But look at these grain prices. They can drop 50% and still be up 25% from 2 years ago. I am not sure if these prices have yet been passed onto the consumer.

    https://finviz.com/futures_charts.ashx?t=GRAINS&p=m1

    Add in all the permit fees, taxes, and other items local governments keep tacking on each year to pay their underfunded pensions. I swear if you want to make any type improvement on my home I have to have a separate permit for each item.

    • When journalist Eric Schlosser wrote “Fast Food Nation”, he spent considerable time dwelling on the fact that the farmer gets less than 1% of the price we pay for various foods. The sugar costs a fraction of a per cent of the price of a soft drink. When you buy $2 worth of french fries, the farmer gets maybe a penny of that. When I buy coffee on sale at the supermarket, the price is about 2 cents a serving. I doubt Starbucks pays much more for its coffee.

      So if we get 1000% inflation in agricultural products, the wasteful American junk food junkie should notice absolutely nothing. It’s but a rounding error.

      The last coffee I bought was two days ago at Albertson’s at a record low price of 85% off retail: $9.99 reduced to $6.99 due to sale followed by a 50% digital app coupon followed by a $2 manufacturer’s coupon for a $1.49 final price after all discounts. That comes to about half a penny per serving. This is already the third time I got the extra 50% off coffee coupon this year, so I’m getting crazy low prices on a consistent basis.

      • joe2 says:

        Coupons and looking for sales do both work, but require a lot of your time which you have valued at $0. I just go and buy what’s on sale. And buy enough of it to ride out until the next sale of it. Less effort required. Doesn’t work for fruits and veggies but I have a big freezer.
        To me it looks like the stores use a random number generator to plan promotions and sales so you cannot plan on hitting periodic sales and wind up buying at full price most of the time.

        Disclaimer: Of course commenting on WS shows I also value my time at $0.

        • Shells says:

          Reading and commenting qualifies as leisure time in my book! I appreciate all the forthright sharing on life, liberty, and lessons learned.

        • There is a way to put a stop to these crazy low prices. If enough people take advantage of them, stores will be forced to stop giving away the products.

          The time is not an issue as the discounts are trivial to find. The issue is that you’re making a bargain with the devil. The corporations think that knowing your shopping habits and selling that information is worth so much money that they’re willing to offer extreme discounts in exchange for letting them track your shopping. You have two opposing parties who both think they’re coming out ahead. We all know we’re exposed to advertising, but apparently we all think we’re immune to it or it’s not a big deal, or we would demand that this form of human manipulation be outlawed.

          If commenting on WS is a waste of time, what is a better use of your time? Passively absorbing what the mainstream media has to say is probably a worse use of your time, so you could be doing worse. But how could you be doing better?

      • Ned says:

        Re coffee; Peet’s coffee costs 1/2 as much at Costco as it does at a Peet’s retail outlet.

        You want another form of inflation? Check the salaries and the pensions, of your local California bureaucracy via the Transparent California site.

        Example: Steve Heminger, Director Metropolitan Transportation Commission (The people forcing more building on California communities and running the billing error prone Fastrak.
        $441,827.83

        London Breed, San Francisco Mayor
        $422,508.49 The streets speak for themself.

        Both paid more than the President of the United States.

        • NBay says:

          The real question is WHO got them into those positions and to WHOM do they owe any “favors” to?

          It’s just a smaller version of the Elections, Laws, Contracts, etc, buying game I witnessed for years having VERY high (Presidential Candidate, Senator, and on down) level insights into the game at the DC level.

          My uncle gave me his business card and it said, “Assistant to the Vice President of ‘a VERY LARGE AEROSPACE/MILITARY SUPPLIER’ Inc”.

          I said, “I don’t get it, what do you actually do?” He just grinned and drawled out, “Well…..I do favors for people and they do favors for me”.

          Economic determinism…..follow the money….

          ..if you can…..

    • Heinz says:

      “But look at these grain prices. They can drop 50% and still be up 25% from 2 years ago. I am not sure if these prices have yet been passed onto the consumer. ”

      Ag commodities are enjoying an inflationary steam roller and are primed, IMO, for a secular bull market run.

      The reasons for this situation are many, but they are primarily geopolitical and climate.

      China has emerged as a big international bully that wants food output from countries rich in food production to stockpile and feed their own people (they have their own climate/weather/animal disease woes).

      Adverse weather and unusual climatic changes will challenge agricultural production in many places for years to come. I believe it could get so bad that food surplus countries like USA and Argentina will eventually pull back and place stringent export controls on ag commodities to cool off food inflation and shortages within their own borders.

      Argentina recently imposed a ban on beef exports because beef prices are out of control there.

      • Saylor says:

        I believe that happened before in Argentina. The people were close to starving as all the beef was being exported to places that could pay higher prices than the domestic market.
        Sad.

        • NBay says:

          You can add that factor (always going for highest price, wherever it is) to what I wrote below.
          Wolf used to have more articles on PE and like I said back then, it is the scariest thing out there, to me. Public stocks are disappearing into these “black boxes”, (not that public stuff is particularly well regulated itself), but at least more transparent.

    • NBay says:

      A note on farmers/farming;

      My fiancé in 76-79 was from Grant, Nebraska. Since my mom grew up on a family farm (about 325 acres, I think) I remarked how hard farm life was. She laughed and told me many had new Cadillacs, air conditioned combines with stereo, and supported the whole nice little town she grew up in with PLENTY spending, all based on farming.

      I looked up Grant, NB. Over 2/3 of the city now qualifies for State funds under a “blighted area” law. Had many pictures of decaying buildings, roads, etc, and references to crime and mostly “juvenile delinquency”

      So what happened? For all the crying you hear about suffering family farms there are fewer left everyday, and nothing will stop that, as the main “Congressional criers” for them know well. Everything is giant corporate stuff now, like Cargill, ADM, etc.

      Of the top 10 FOOD producing corps by SALES in the WORLD, 7 are PRIVATE EQUITY, last I looked….#’s 3,5, and 7 are public. And they are all going full blast for max profits, even if they have to turn all that FOOD into auto fuel at 1:1, 1:2 MAX ROE. Meanwhile good land is being trashed, more fertilizer bought, and more pesticides are being used (“round-up ready” corn from Monsanto…just drench it all, and no expensive weeding needed, more profits). Precious water from the Oglala underground resevoir, thousands of years old, is dropping.

      And it’s still FULL BLAST production in EVERY possible place for someone’s short term pocket filling.

      These vanished family farms and towns they supported, like in the rust belt, is also the land where talk radio has ruled for 40 years or more, and listeners are PISSED and ready to believe anything about ANY ENEMY, real or not. They have all been corporately screwed and badly.

      Our “masters” want them to HATE our/their OWN attempt at democracy, as ALL corporations do much better under DICTATORS, and always have.

    • K says:

      The desperation of the ultra-rich owners (a.k.a. banksters, as opposed to the guard-dog bank officers/directors) of the “Fed,” which is privately owned through their ownership of the local banks that on the “Fed” district banks is going to start showing through more and more. Their cornucopia, which is the “Federal” Reserve, is threatened as its control over the economy starts slipping more and more.

  4. Yam says:

    “Temporary”??
    You mean 2.3 years? LOL
    Not possible

    • 2banana says:

      The 3% federal tax on long distance phone service, or the so called Spanish American War Tax (as it was created to help pay for that war) existed 1898-2006.

      Literally – dozens of other examples at the federal level ad hundreds at the state level of “temporary.”

      • timbers says:

        And yet taxes on the rich and corporations have been repeating and swiftly reduced or abolished. The RR tax cuts, Clinton tax cuts, Bush tax cuts, O tax cuts, Trump tax cuts for the rich and corporations.

        • Old School says:

          Public corporations net out about $2 Trillion after taxes. Government is currently spending $6 Trillion. Taking it all is going to be enough.

        • Winston says:

          What, do you think corporations just eat an increased cost of doing business on their balance sheets? No.

          Corporations don’t pay their taxes, the customers of their products and services do as well as their employees in their lack of or reduction in wage increases and/or benefits.

          So, who pays corporate taxes? YOU DO.

        • timbers says:

          Old School…you forget the rich, and what does that have to do with corporations swiftly getting their taxes repealed? Winston…if we pay the taxes for corporations why do they spend so much on buying our government and repealing them and getting subsidies? You might think about getting a cup of coffee and waking up.

        • timbers says:

          “Public corporations net out about $2 Trillion after taxes. Government is currently spending $6 Trillion. Taking it all is going to be enough.”

          Why do you assume that taxing corporations and the rich is about the deficit?

          Most spending isn’t funded by taxes, and it’s been that way for a very long time.

      • DawnsEarlyLight says:

        How about a3% tax on kleenex, and a 5% tax to dispose of it.

      • Ensign_Nemo says:

        The Johnstown Flood Tax of 18% on all alcohol sales is still in effect in Pennsylvania. The flood happened in 1936.

        https://www.revenue.pa.gov/GeneralTaxInformation/Tax%20Rates/Pages/default.aspx

  5. 2banana says:

    Looks like inflation, as measure by the lowest tracker of inflation, is back to the year 1990.

    Mortgage interest rates in 1990 were about 10%.

    • Wolf Richter says:

      Yes, different world today. World of “financial repression.”

      Bond yields didn’t wriggle today upon the news. Global central banks rule!

      • WES says:

        Yes, “extreme” financial repression adds an unkind twist to the meaning of inflation if you have any savings.

        The combination of financial repression, money printing, and price increases doesn’t just add up to determine total inflation. All of these 3 factors feed into each other such that they end up getting multiplied!

        Financial repression x money printing x price increases = Actual total inflation.

        I think people seeing inflation everywhere, is what is driving the quick “inflation” mindset change we are seeing now.

        • Old School says:

          I was reviewing data from Hussman that showed the last two times stocks were at this level 1929 and 2000 that stocks underperformed treasuries by more than 6% per year over the next decade. With treasuries at 1.6% I think it has Fed scrambling to figure out a solution.

          If they don’t do extraordinary stuff stock market would be sitting at very low level in my opinion. Hard to believe as low as interest rates are that a 10 year Treasury might be a good relative value.

        • rhodium says:

          I really don’t see the incentive to save anymore. They’ve done an excellent job of destroying the value in securities markets with low yields. The stock market is a bozo clown casino filled with face clawing maniacs. Expecting perpetual returns far above economic growth rates is the biggest lie sold to these people.

          The Fed wins. Financial repression is here to stay. What choice do people have except to eat drink and be merry with their paychecks? My hope is that by the time I retire, there will have been a public outcry over shotgun to the head retirement plans and I won’t have to wonder if stock market capitalization to gdp ratios can expand infinitely.

          Besides, if we keep getting inflation like this, I won’t be able to save anything anyway.

      • LeanFIREQueen says:

        > Yes, different world today. World of “financial repression.”

        Those who had been savvy killing fixed costs like there’s no tomorrow like the leanFIRE crowd imho have nothing to worry about.

        Those with bloated budgets on the other hand…

      • MCH says:

        You mean like the time when defaults on subprime mortgages (found in mortgage backed bonds) skyrocketed, but the actual bond values remain unchanged?

        Yep, it’s just different this time.

        Different set of liars that is.

  6. MyLadyHumps says:

    I thought we all agreed inflation is good, no?

    Heroic bureaucrats have been working hard to give us the inflation we deserve, now that the joyous day has arrived are we to pretend this is not great news for one and all!

    Powell is a shoe in for that Nobel prize in economics. Mission accomplished!

    • Harrold says:

      Japan is jealous right now.

    • historicus says:

      INFLATION STEALS the values of past labors (savings) and steals value from current wages.
      People…..wake up!
      Premeditated and orchestrated THEFT from the People ….
      when the Fed is directed, instructed, agreed to “stable prices”.
      How can this be…?
      Should Powell be arrested? And if not, why not?

    • Sams says:

      Only that there is no such thing as a Nobel prize in economics. There is the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel”, but that one is not one of the “regular” Nobel prizes. It could be said it is the central banks prize in economics. And the FED is the leader of them. Then, guess what kind of economic theorists get the prize.

    • The Real Tony says:

      Good if interest rates are higher that the inflation rate, devastating if they’re lower. Today they’re much lower so we have the worst of all worlds.

  7. The Ship of Fools so precariously and stupidly sailed by the Fed has already run aground on the Shoals of Dollar Debasement. Now let’s see who runs screaming to the lifeboats first? Oh, the peasants will be sold rubber rafts without bottoms.

    • Old School says:

      Fed is printing enough to buy 1200 F-35 fighters per month or about 10 aircraft carriers per month each ship with nuclear reactors. That’s a lot of printing.

  8. Gerard says:

    Talked to a manufacturer today. He was buying steel in Q1 2020 at €600/tonne; Jan 2021 €850; today it’s €1650. Final product inflation HAS TO TAKE OFF soon

    • David Hall says:

      The Chinese have been shutting low profit margin steel smelters. They increase their profit margin, or merely cover higher input costs of labor, iron ore and coking coal. Shipping prices are also rising. You might call this inflation. Too much money is trying to buy shortages of goods.

    • Old School says:

      Inflation forces people to have to choose between things. Companies that have pricing power will be the winners.

  9. sunny129 says:

    Mkts react and play by investors will depend upon, if the inflation is transient – how long- what sectors and when will Fed act?

    Take your pick and place bets in the casinos run by Fed!

  10. Petunia says:

    When I see the COLA for Social Security go up I’ll believe them.

    • Minutes says:

      Grandma will need to go back to work because junior is still collecting extra bennies

      • nodecentrepublicansleft says:

        Not even close! IF Grandma goes back to work, it will be because:

        1) The wealthy haven’t paid their fare share since the 50s.
        2) Same w/corporations
        3) The Military Industrial Complex has bled us dry w/their forever wars. What 5 yrs to defeat Hitler, 20 to lose in Afghanistan and Iraq?
        4) Etc.

        Get real. You should be mad. Get mad at the right people.

        • Billybob says:

          100+ this.

        • Lisa_Hooker says:

          nodecentrepublicansleft should decide for us all what a ‘fair share’ is.

        • Thomas Eccleston says:

          I’d rather just vote with my feet than be mad tbh. Rather be happy in a poor country with strong cultural values than “rich” in a country that worships depravity (harsh? not for someone under 30 is my response, we all live to a great extent lives obfuscated by our own generational/cultural/ethnic bubble here). US probably won’t be rich for that much longer anyway. Seems to be going the way of Japan, but with much much MUCH more social unrest. Instead of economic stagnation like them, USA will likely start a slow contraction (which has already long since begun if you look past the band-aids and likely curated data) that ramps up at a certain point due to the underlying weaknesses that we possess that Japan does not.

          -Tom Marvolo Riddle is my spirit animal <l :D

    • Lance Manly says:

      It will. It is the law.

    • Charlie says:

      Petunia,
      Here are the first 4 months of increases compared to last year. COLA for SS is the average of Jul, Aug, Sep. We are well on our way to 3-4% increase.

      2021 255.296 256.843 258.935 261.237
      1.57% 1.95% 3.01% 4.70%

      https://www.ssa.gov/oact/STATS/cpiw.html

      • Petunia says:

        I expect the rate to drop(be manipulated down) for July, Aug, and Sept.

        Nobody remembers that Joe had a plan to increase SS for the lowest beneficiaries, to bring them above the poverty level. Now not a peep about his promises.

        • joe2 says:

          The trust is not strong with this one.

          These are not the rates you are looking for.

          If the Fed tries to manipulate inflation down, it will rise even more powerful.

    • Lynn says:

      They won’t, but one way they are both subsidizing agricultural increases and staving off pitchforks is by increasing the amount given with food stamps. I don’t know about other states, but California has had a drastic increase in the amount given. If that is pulled away there will be a crisis.

      Along with the crisis when eviction moratoriums expire. I talked to my landlords a few days ago and they mentioned they already have evictions lined up and ready to go. They own thousands of units.

  11. NARmageddon says:

    Temporary inflation is a permanent price increase. Inflation is the (mathematics alert) 1st derivative of price as a function of time.

    The type of inflation that is the worst for 90% of the population is housing inflation and stock inflation, which are examples of asset inflation. It makes your wages worth less in terms of what you really need, namely buying a house and to buy stock with some decent dividend income.

    The cure is asset deflation.

    Most people are blind to the ills of asset inflation because it think it makes them wealthy! Look, the stock market is up. Muh 401k is up!! But the wealthiest 1% already owns most of the stock market, and their gains from asset inflation are MUCH bigger than yours. You end up POORER, not wealthier.

    When rampant 2X and higher asset inflation finally trickles down into wages and consumer prices, the wealthy start screaming. They don’t want to have to pay wages that follow asset prices.

    Again, the solution is asset deflation.

    • polecat says:

      Hence all the meme-driven mendacious bs spewed through the various pieholes of Big BidnessMan the Realm over .. about ‘bong smokers’ and ‘video gamers’ not wanting to ‘work’ under their tutilar lash!

      Screw them

    • Sergio Falero says:

      Totalmente de acuerdo !!!

    • LeanFIREQueen says:

      > The cure is asset deflation.

      The cure for housing imho is let nature do its thing instead of wasting $ on healthcare extending longevities.

      If the old had wanted that, they would have made sure there was enough new housing supply. They became NIMBYs instead. We have to grow a pair and let them go. We are too many in a planet with increasingly lower resource levels.

      We need to start celebrating mortality as the way to leave resources, starting with housing, for the next generations.

    • Heinz says:

      “Most people are blind to the ills of asset inflation because it think it makes them wealthy!”

      Reminds me of a city council meeting a few weeks ago where members talked about upcoming city budget for 2022.

      These local politicians display an amazing ignorance of asset inflation and simple economics in general.

      As one council woman put it in her sweet voice, current out-of-control housing price appreciation is a good thing because people are wealthier because their houses are worth more. Therefore, any resulting increased property tax hikes are justified because citizens are accordingly wealthier.

      This council is a little jittery now because the state legislature just passed a law requiring cities/counties to be more transparent and have a public hearing if property taxes jump and exceed last year’s levels (so-called ‘revenue neutral’).

      I had to chuckle when the city administrator reassured the politicians that this was just a formality– they will dutifully hold such a hearing and exceed the revenue neutral tax level. After all, their public service unions are already expecting their COLA since it is in their contracts.

    • Lynn says:

      The easiest way to explain what inflation is and does is to say “inflation is when the price of everything goes up, but your income does not”. People readily and immediately understand and don’t forget that concept later. It’s an “Oh, wow” moment. They already know what it is but there is a propaganda effect that disconnects. It’s an easy way for all to finally put that vague undefined understanding of how “bend over” works into words.

      • Lisa_Hooker says:

        Inflation is when you can’t afford the same things you could afford last year. Hyperinflation is when you can’t afford the same things you could afford last week.

    • Lisa_Hooker says:

      Nah, the solution is income inflation, both active and passive. It just needs to accelerate faster than price inflation. Maff is fun.

  12. Poor like you says:

    The Gilded Age has come again.

  13. raxadian says:

    So.. turns out free government subsides are not free, they cost inflation…

    • polecat says:

      You mean to say subsidies to the likes of our vaunted Avaricious Lords … ???

      .. as in inflated egos, full of oozing and pustulent dishonesty, grifting off the rotting public corpse whilst producing nothing of real last value – THOSE $ubsidy Holders?

      Yeah, they CARES alright!

    • Auldyin says:

      rax
      Govt spending can only, everywhere and always, be covered by one of, or a combination of :-
      1) Tax (honest & straight but you don’t get elected)
      2) Borrowing (kick it to the future, let the grand kids deal with it)
      3) Inflation ( go down to the basement and run the press like a forger only you don’t go to jail)
      That’s it, easy really, being a politician.
      I forgot about asset sales- you could flog an old aircraft carrier to the Saudi Arabians, yes you could!

  14. random guy 62 says:

    IMO, there is still more inflation coming. We in the truck equipment manufacturing industry are seeing massive and rapid price escalation, largely due to higher commodity (steel, aluminum, copper) costs.

    No joke, our steel prices just jumped 40% overnight this week. The market for some items is so hot, the mills and processors are naming their price and we have no choice but to pay it and pass it down the line. Many of our high-volume steel purchase prices have increased by over 100% in just five months.

    We are not alone. Our industry peers are all seeing and doing the same. So far, cost increases have translated to product price increases ranging from +10 to +25% in less than half the year. These still have not made their way down to the end user… and eventually the consumer.

    It doesn’t stop at just commodities. Labor rates are rising to try to attract and retain talent amid a broad spike in labor demand.

    Perhaps this will cool as these cyclical prices move back down, but the floor is probably doing to sit a bit higher now.

    As Wolf has noted, the mindset has shifted. This summer is going to be interesting!

    • Wakarimasen says:

      Look at the CRB-Index. Commodity prices went up recently. But from what a level.
      Nearly the lowest in 20 years.
      Look where the Index were 2008. The current levels of the CRB not pointing to inflation. But when people get free money they spent it freely. And so some prices rising. If that free money stops and the wages not accelerating, how there can be lasting inflation ? And with an unemployment rate still double as high as before the Pandemic how can there being rising wages over the long run.

      • Winston says:

        “If that free money stops and the wages not accelerating, how there can be lasting inflation? And with an unemployment rate still double as high as before the Pandemic how can there being rising wages over the long run.”

        Due to the rapid, permanent loss of brick and mortar businesses and the shift to businesses with more automation and decreased labor requirements, the premise of your first sentence is false. For political reasons I don’t think the free money will stop. Perhaps reduced. Colorado is now offering $1,600 to entice people to go back to work.

        • Winston says:

          Too many people have gotten a taste of what is, effectively, a Universal Basic Income and any pols who move to completely end that will be committing political suicide.

          I also think this is a back-door way for the Dems to force a $15 minimum wage… which will further reduce employment… which will further increase their constituency.

        • Wakarimasen says:

          Wages are the biggest part in any production process. Due to ongoing automation and computerization the machine does what the human did before.That means wages get pressure.
          This computerization (internet) means furthermore prices get pressure for the consumer can search the entire world for products.
          And if deleveraging happens how can that have inflationary impact ?

      • joe2 says:

        “If that free money stops and the wages not accelerating, how there can be lasting inflation ?”

        Your assumption is that if something is for sale, it must be sold. If demand falls the price must fall in order to be sold. Not true. Just because you cannot afford something does not mean the price must be reduced.

        If your Cost of Goods Sold exceeds the price your customers can pay, you cannot sell it and make it up in volume. And you liquidate and close. Reducing the pool of available product. Or the supply chain freezes up back to the source and results in quasi-slavery in raw materials production to reduce costs at the beginning of the chain. Assuming the problem is not a shortage of natural resources.

        The end effect is a decrease in the physical standard of living as less satisfactory substitutes are used but not necessarily at lower prices. This is not necessarily a bad thing as the supply of shiny addictive things decreases.

        • Wakarimasen says:

          My assumption is if something is for sales it want to be sold.
          If that is not the case the entire discussion is useless for then there is no market anymore if some entity can freely decide if to sell or not and keep the goods produced idle for their own pleasure.

    • Winston says:

      “IMO, there is still more inflation coming.”

      You bet. Shut the world economy down for a year and then flood the world’s leading consumer country with debt-based money printing and you end up with lasting log-jams in both production and transportation.

      Producers don’t want to ramp up to increase production because they don’t want to get caught with expensive excess plant when the demand lessons or the everything bubble pops. Plus, any ramp up can be extremely expensive and have huge lead times like building new cargo ships, new port facilities, and integrated circuit foundries, that last one leading to production limits for all kinds of products.

  15. Anthony A. says:

    This inflation thingie really has me stoked!

    I’m leading the pack within my group of old fart friends with a 17% increase per month in the cost of my Medicare Supplemental Policy Plan G insurance. Add that to the annual increase in the Medicare premium, and J. Pow is really doing God’s Work!

    I can’t wait for my Part D (drug coverage) premiums to increase too! (Oh, and the increase in the deductibles too!)

    I should probably Tweet J. Pow and give him a thumbs up for his hard work! Time for that Nobel Prize I would guess!

    • Harrold says:

      Imagine if you had to pay the actual increase in the cost of Medicare.

      • Anthony A. says:

        I didn’t imagine paying into the system for 53 years either, but I did, and my wife paid in for 40 years. It’s insurance, and we still pay a lot for it.

        • Old School says:

          My parents are 90 and 94 and are still self sufficient. They have the supplement insurance and it’s petty typical to get 10% plus increase in supplement policy and after many years of this plus medicare plus some monthly drug expenses plus years of Zirp they are getting close to 50% of income going to health care.

          They came from the generation where they bought a modest home and paid it off quick so they are ok, but if you live to be old enough inflation slowly eats up your income if you are fixed income investor.

        • Lisa_Hooker says:

          I paid into the ‘system’ for years. Then in 1966 I got a new additional bill for Medicare. The cost was $3 per month. It will be interesting to see what Medicare takes out of Social Security monthly checks as they are adjusted for the new inflation. Remember when
          financial planning was possible?

      • nodecentrepublicansleft says:

        Newsflash: It’s immoral to make $$$ off of Grandma’s brain cancer.

        The US “health care” system is an international disgrace everywhere except HERE where Americans are too stupid/apathetic to care.

        I’m getting robbed/raped at the same time? Hmmmm, have to finish the FB post and get back to watching American Idol, oh well…..

        • billytrip says:

          It amazes me how many morons think there can be a “free market” on monopoly products and services. Most health care is a monopoly, nobody ask the ambulance driver “how much is the ER fee at Mercy compared to Green Cross”?

          Health care in America is now a game to strip every dollar from the middle and lower classes as is possible, and the government also.

      • Apple says:

        Free money is ok as long as it’s Boomers receiving it.

        ‘Cause they *earned* it.

        • Old school says:

          I used to feel the same way when I was busting my butt working in mid life. Think about it this way. Life comes in 3 stages like a hockey game.

          First period from birth to around 18. Society invests in you. On average around $10,000 per year for education. It’s up to you how much you learn.

          Second period from 18 to 62 or so you are pulling the wagon and paying your own way plus pulling the wagon with the young and old in it. It’s a tough time for most, but you are at your peak ability to produce.
          Maybe you get to keep 60% of what you earn.

          Third period 62 til you croak. If you didn’t do well in life government has safety net programs. If you did OK and had reasonable investments you get benefits but you also pay taxes and maybe you break even with benefits equaling current taxes you owe. If you did really well your tax rate in retirement can be very high and maybe you keep 70% of retirement income.

        • Heinz says:

          Okay boomer … tag line of up and coming generations.

          We don’t need generational war on top of all our other problems.

    • Michael Gorback says:

      Dump your Plan G for Plan F. G covers your deductible but the extra premium you pay costs more than the deductible. Or at least it did last time I wne shopping.

      • Anthony A. says:

        I am real astute on Medicare plans and what’s up. I am jesting about the G increase I got….it’s still a lot less than F with only a $185 deductible per year (last year’s cost).

        I dumped full F for Plan G three years ago when F got to be twice per month for me what G was. And G’s rate of increase was less than F’s rate at that time.

        My wife still has full F (we both signed on at the same time) and she is paying almost twice what I am now with G. She is too ill to re-qualify for a lower supplemental plan so we have to pay for F.

        Next open season we are going to look at Medicare Advantage plans as we are almost dead anyway. Plus, the big operations we needed early on (by selected surgeons) have been done. We are also too old for a heart transplant, if needed (75 is max they will consider).

        • El Katz says:

          From what I can ascertain, the Plan G’s are losing subscribers as they can’t sell new ones and the people who had them either died or couldn’t afford them any longer…. so the risk pool is smaller and the costs higher as the “guzintas” are greatly reduced.

          Are you certain that you can’t move your wife from a Plan G to a Plan F with the same insurance carrier? I realize that to change plans (and insurance companies) requires underwriting… but does the same apply to different plans with the same company?

        • Michael Gorback says:

          My bad. G is the better plan. I’ve always had G. Still, shop around. I use a broker. He’s online and we do everything over the internet with Docusign.

          He can shop prices for you on G.

          When you go to pick out a Part D plan he gets a list of your meds and matches you up with a suitable policy.

          There is no fee. He gets a commission from the insurance company. I can’t give out his info here unfortunately.

          Medicare Advantage is the most toxic product in the insurance pantheum. People buy them because they cost less and then find out why they cost less. MA plans are like HMOs. You need to get authorization, they deny it, you and your doctor fight with them, etc.

          About 75% of initial denials are eventually overturned, but they still manage to block 25%. By contrast Medicare only has preauthorization for durable medical equipment.

          So their cost savings derive from their denials of care and services. In addition the doctor’s staff can spend hours on the phone arguing with them.

          Before I retired I think I had only one MA contract left. Nobody wants to see MA patients.

          The problem has gotten so bad that legislation is being drafted to address the abuse. The following link is just a random sample that sums up the problems.

          https://www.acc.org/latest-in-cardiology/articles/2021/05/13/17/36/acc-supported-prior-authorization-reform

        • Anthony A. says:

          @ El Katz:

          “Are you certain that you can’t move your wife from a Plan G to a Plan F with the same insurance carrier?”

          Yes, we tried that. Her carrier won’t let her move to G. She had COPD and is on oxygen 100% of the day and no way will any carrier write a new policy, even a downgraded one. I have tried this with a broker who sells across the board. We are currently paying ~$400/month for her Full Plan F.

          @Michael Gorback: Her Part D drugs (13 of them) are mostly generic and the costs for those are minimal. She has two Tier III breathing drugs that are pretty expensive. Every year I do a comprehensive Part D evaluation to see which plan fits her the best. Every year, the OOP for the premium, deductible and drug costs average about $3,600 for her plan and meds.

          When one looks at medical costs for a senior, it gets increasingly expensive each year you live, unless you are lucky enough to not get very ill. And some seniors actually get real lucky and die from a heart attack or car accident and spend very little in medical costs. The ones that end up paying up are the people that get lingering, expensive diseases like COPD, cancer, congestive heart failure, etc.

        • Michael Gorback says:

          It can be difficult but not impossible to switch to G. If you have “pre-existing conditions” (one of the stupidest terms in the world – why not “existing conditions”?) they want to keep you boxed into F.

          Depending on the state you live in and the answers you provide on the questionnaire for switching you just might be able to swing it, providing there’s an accommodating insurer.

          You need a good broker. I’d recommend one but Wolf is pretty strict. I once used the word “sperm” and he deleted the post because I mentioned a brand name.

        • Michael Gorback says:

          BTW Anthony do NOT buy an Obamacare policy on the exchange. They are radioactive. You get what you pay for. Obamacare policies are cheap but pay so poorly they make Medicaid look good.

          Heart transplants are not covered after age 75? I didn’t know that. So the death panels have arrived. Scary. I’m 68. (But I read at the 71 level).

        • Anthony A. says:

          Michael Gorback: Obamacare is not available for folks who qualify for Medicare. I didn’t intend to mean that I had that option.

          And on heart transplant’s, my brother-in-law who needed, and got one at 74 years old, was told that if he was 75, that option would not be available to him. I was there when the Doc at Memorial Hermann Hospital in Houston made that clear.

          However, to be eligible for that transplant, one must not have any current “terminal” disease (other than a failing heart), and have no history of smoking, alcohol abuse, a a few other pre-qualifiers. He got the heart at age 74 and now at 81 he is still doing fine.

      • rodolfo says:

        Plan F is no longer offered only for those who already had it.
        G is the same but with the 203$ deductible.

        Having started medicare in January comparing it to plans before 65 I have had I would say it is wonderful.
        Anyone complaining about the personal cost of medicare is crazy.
        The problem is the healthcare system charging so much compared to costs in other countries.

        Let me use medicare here in Costa Rica and whatever I need would be 50% less at the same or better quality.

        • Anthony A. says:

          I guess I am crazy for complaining. Too bad the Gov won’t give us seniors the opportunity to buy ACA plans with our low incomes (hey, you get to keep your doctor, remember?).

          So maybe we should move to Costa Rica and spend less? That’s not practical for the vast majority of seniors in the U.S. It’s a great idea though!

    • Lynn says:

      You should just email him. Or it. The email is on the Fed’s website. I don’t think they get many emails. Please do.

  16. Robert says:

    “And Now Prices Are Really Soaring: May Rent Jump Is Biggest On Record”

    Wolf, saw the above article over at zerohedge. My guess is that inflated rents will prop up housing prices.

    Will you be covering the rental marker any time soon? I take much of what I read at ZH with a grain of salt.

    • polecat says:

      Well, with rent(er)s impacted as such, the street tents will increase exponentially.

      Dickens 2.0 – Here we come.

    • Wolf Richter says:

      Robert,

      Rent in San Francisco didn’t budge much. Still at rock bottom, down nearly 30% from 2019. In terms of other cities: some are up a lot, others are down a lot. Zero Hedge headlines about economic data are to be enjoyed with a sense of humor and a grain of salt, but never taken seriously.

      • rodolfo says:

        Good point about zerohedge Wolf. Please dont turn this site into a ZH with doomsday stories to attract clicks.

        Keep it real.

      • Robert says:

        Thanks!

        Although I do see your articles on ZH from time to time.

        • Wolf Richter says:

          What I meant: don’t just read the headline and take it as a fact. Read the whole article to see what they’re talking about.

        • 91B20 1stCav (AUS) says:

          Wolf-i have always greatly admired your patience with those suffering from information-ADD, especially in terms of your dealings with those who won’t read past a headline…

          may we all find a better day.

    • Petunia says:

      When the rent moratorium ends, do you think these people will be paying higher rents, when they can’t pay their normal rents? Delusional.

      • MonkeyBusiness says:

        +1. Of course not. They’ll buy their own house ;) I mean yeah, delusional pretty much nails it.

      • Old School says:

        No one knows how it’s going to look next year imo. Investors are too optimistic in my opinion. Fed and US government hope for a soft landing. Don’t think is going to happen.

        • Lisa_Hooker says:

          “Any landing you can WALK AWAY FROM is a good landing.” Oops, I think that’s for aeroplanes. Maybe for non-recourse mortgages too.

      • Heinz says:

        CDC eviction moratoriums have already been successfully challenged in court by landlords.

        States vary in their willingness to extend the federal eviction ban (supposed to end June 30, 2021). It seems more states are willing to halt eviction bans soon, so stay tuned.

        I suspect most tenants (that is, ‘good’ tenants that didn’t trash the property or run drug houses in them, etc) seriously in arrears will be handled with kid gloves as they transition out of eviction ban protection. In other words, long graces periods, modifications of rent contracts, and outright public assistance to pay back rent.

    • Shiloh1 says:

      Turn those 100 story office buildings in Chicago into affordable housing.

      • c_heale says:

        It’s not so easy since you need more plumbing (more toilets, showers, sinks) for an apartment than an office. This would have to be retrofitted – which is not cheap and sometimes not possible.

      • DawnsEarlyLight says:

        ….and paid for by the taxpayer.

    • nodecentrepublicansleft says:

      Oh some Bulgarian BS? Sure.

      I put them on the same level as People Magazine.

    • timbers says:

      I refuse to believe rents are rising.

      Every once in a while I check Craigslist rentals for the type of rent I do. A year and half ago there were about 15 adds. Now, about 4 and they are not comparable.

      Rentals in my type have collapsed. I fear what might happen when my current tenet leaves.

  17. eastern bunny says:

    Yet the ten year didn’t even notice, yields went actually down, go figure.

    • jrmcdowell says:

      When the Fed is buying such large amounts of Treasuries, these bonds are no longer accurate signaling instruments.

      • eastern bunny says:

        I agree with you regarding government treasuries but it is not the case regarding corporate bonds and other non government debt the Fed is not buying.
        Who is holding/buying those corporate bonds yielding nothing when inflation is 4% and more? This I dont understand.

        • jrmcdowell says:

          Relentless financial repression at work driving investors into expensive stocks, housing, and corporate bonds in a frenzied search for yield. Everything gets priced in relation to the interest-rate curve and expectations that rates will remain low, while trillions of Fed liquidity magnify the price moves.

        • Old School says:

          Can’t pick on corporate bonds only. In general Zirp policy has all major financial assets priced to deliver very low or negative real returns. It might be prudent to still do a diversified portfolio but instead of expecting 5% real return, expect zero percent real return and if you do better that would be great.

        • Ida Sa says:

          @eastern bunny

          Ever since 2020 when Fed threw the signal that they can now buy corporates, even though they didn’t buy much, a signal from the Fed is all it takes. Corporates are so low not only due to risk free rate suppression, but the spreads as well. Both components no longer reflect reality. Jerome, in one interview, indicated that he was amazed at how efficient the signaling effect was in these markets during the 2020 spread blowout.

          Next time around, Fed will probably actually need to buy more than a bit of corporates to keep the suppression alive and well.

          Thank you Mr. Powell for extreme financial repression across all bond securities.

    • Lance Manly says:

      That means the bond market, absent any QE from the Fed, agrees it is a blip.

      • Gary Yary says:

        A treasuries question for the group. On the NY Fed page that has the Fed purchases…I cannot find “what maturity date” is being purchased. Four week, 8 week, 3 month, 6 month, 52 week, 2 year, ten year etc.

        Eastern bunny has an interesting observation – the reply’s encourage further exploration.

        In physics an expanding universe model could be compared to our current economy.

        This “Big Bang” started in 2008 is my estimate.

        Or is it a Big Ricochet?

        Be well.

        ?

        • Old School says:

          Stockman makes it pretty simple. We got an economic boost as government policy ran total debt from long term average of 1.5 x GDP to 3 x GDP. That was a one time ride.

  18. Micheal Engel says:

    Fake : only 3.1% Y/Y when last year WTI was minus 40.

    • Wolf Richter says:

      Micheal Engel,

      Fake fake. Please read the part in the article where I explain that this (the entire article and both charts) is about “core” PCE, meaning without food and energy (acronym explainer: WTI = crude oil grade West Texas Intermediate).

      And while at it, check out what I said about the Base Effect and the 3-month annualized core PCE, which gets around the Base Effect.

      Well, heck, just read the whole article. Might be easier than piecing it together.

      • historicus says:

        Also, the PCE is chain weighted…allowing items that rise too much in price to be substituted out, and replaced by lower cost items.
        How low reading biased can it be?

      • MiTurn says:

        Your a good and patient teacher, Wolf. Recalcitrant students…

        • Michael Gorback says:

          Theres a mean side.. He will force you to eat an entire (eyes, fins, etc) small fried fish.

      • rodolfo says:

        oops Michael got Loboed

  19. MonkeyBusiness says:

    Any inflation level you see is temporary because the next one will be even higher!!! That’s what JPow meant.

    The Nobel Prize committee might have to give him a Nobel Prize … for Inflation.

    • nick kelly says:

      Factoids: Noble laureates in economics were the math geniuses behind the 1998 LTCM crisis that almost bust the financial world. Kind of a precursor to the GFC, but happening way faster. They had the math theory right but hadn’t counted on a real world ‘Black Swan’, in this case Russia defaulting.
      The Nobel in Economics was not Alfred Nobel’s idea, it was a last minute idea from the Bank of Sweden. Some of the Nobel blood relations want the prize in economics cancelled.

      • Old school says:

        I have a theory that it takes really smart people to blow big things up. Usually if you are an average peon you might kill yourself or a few other people when you make a mistake. We give smart people the keys to the world and they can blow it up and usually get a medal around their neck and say what a good job they did.

        Remember when GWB gave the award to the guy that gave him the weapons of mass destruction BS on Iraq. Maybe Dr. Fauci is another one. Time will tell.

      • cb says:

        nick kelly said: “the 1998 LTCM crisis that almost bust the financial world.”
        ——————————–

        Why believe LTCM (ass-hats) came close to busting the financial world? More likely, that was just the propaganda put forth to bail out favored entities at the expense of taxpayers and common citizens.

        That is what the FED is for. To subsidize the chosen at the expense of the un-chosen.

      • MonkeyBusiness says:

        Inflation will be temporary because we’ll have hyperinflation ;)

        • Michael Gorback says:

          Hahaha!

          Once upon a time an Indian chief called the tribe together and announced that the medicine man had predicted a severe winter where the only thing to eat would be buffalo chips.

          The chief went on to say that there was a bright side. The medicine man predicted that there would be a plentiful supply of buffalo chips.

  20. Tom says:

    Fear of inflation is turning me into a hoarder.

    I’ve been out in front with some purchases- like a complete set of kitchen appliances for a house I had intended to build before lumber went nuts…. so instead of building a house out of sticks I’m building with ICF forms and cement. Never before has cash burned holes in my pockets like this. I ordered a new F350 from the dealer two months ago- customized with 8ft box but minimal gadgets- locked the price at 49K but I have to wait until at least Sept for it if they can find semiconductors… big if! I also grabbed some gold at $1724/oz about a year ago… seems to have turned out not to have been a bad idea, though only a pound and not enough to really make a big difference unless the S really HTF, in which case my new arsenal of firearms and ammo might hold some value. I do not like this hoarding as these purchases have been motivated more out of fear of erosive loss than their inherent enjoyment and utility. (and this is only a small portion of the list of newly purchased crap) I had to buy a 20 ft shipping container to store some of it… including solar panels, extra coffee pots, a toaster oven, various and sundry tools, whatever the hell I figured might become scarce or what I might need.

    Yes, this sucks, but guess what- absolutely everything I bought has gone up in price. Some things more than double- like the Intex backyard pool.

    • nodecentrepublicansleft says:

      Sure! Buying a brand new F350 is a really wise use of your $.

      You should buy all the toasters so you can barter w/them later….

      Just buy 10,000 of everything and you’ll be safe!

      Doing that is bad enough but admitting to it? SMH

    • Michael Gorback says:

      A little over the top I guess. I have done similar things but over a period of years. I bought most of my PM in 2008 though. I was pulling so much cash out of the bank to buy gold at a local dealer that I had to do a “Know your customer form”. Then I REALLY wanted more gold because the full implications of the Patriot Act hit me in the face.

      My advice: miniature liquor bottles. They’ll be great for barter. With a large bottle once it’s opened nobody knows if you diluted it. With the minis they can see they’re unopened.

      My problem is that I keep drinking my inventory.

      A pound of gold in a true SHTF situation will get you through. I’d advise silver too. It’s more bulky but when you go to buy some gas do you want to pay with a Silver Eagle or take a file and scrape some gold off of a bar? Gold is what you use to pay the freighter captain to get you to South America.

      • bungee says:

        gold is used to shuttle wealth through the rough period. not for the rough period itself. the paper will all burn off but the gold will make it through.
        in a true SHTF scenario gold is just about useless. only guns and food do the trick.
        hope it doesn’t last too long

        • MonkeyBusiness says:

          “in a true SHTF scenario gold is just about useless. only guns and food do the trick.”

          In the US. With the big big assumption that you’ll survive robbers, marauders, etc. If you don’t … well

          For some of us, there’s other options ;) I can’t imagine countries like Switzerland falling apart for example.

        • Michael Gorback says:

          It depends on how bad it gets.

          If you’re starving you’ll trade a diamond for a loaf of stale bread.

      • ATX says:

        I needed to lol today. Thanks! All I’ve managed to stock up on this year is some canned soup but the mini’s sound promising and a good accompaniment for my soup.

      • Lisa_Hooker says:

        Only if the gold is paid at your destination. Prepayment in full creates the option for swimming lessons.

    • Old School says:

      Yes Fed is thrashing us with excessive cash at Zirp in hopes that we spend it. We all have to decide how we are going to deal with it.

      I decided I would hunker down and not spend and eat the inflation assuming there will be a panic somewhere along the way that drops asset prices. That’s still my plan, but will keep an eye to see if it looks like inflation is going to be sticky.

    • Heinz says:

      Rampant inflationary environments are where the prudent take heed and action and hunker down. That means cutting back on discretionary purchases and looking for places to economize and slim down (including waists). But the top 20% or so of income folks need not worry– they live in a different world altogether.

      It also means for some of us the need to find a side hustle to supplement their income and ensure their table is sufficiently supplied with food and their shelter is still affordable.

      • I’m curious what income threshold you think the top 20% of earners bottoms out at. Lumping in the top 20% with the top 5% is doing a disservice to classifying where the true weath inequality exists. Heck, even lumping the top 5% with the top 1% is extremely unhelpful as well.

        So you believe the bottom 80% pay for the top 20%’s food and rent. Last I checked, the top 20% pay between 70-80% of the total income taxes paid in this country.

  21. Spencer Bradley Hall says:

    re: “The Fed has not indicated exactly how far core PCE can overshoot the 2% target and for how long it can overshoot it”

    That’s easy for me to predict, but impossible for the FED. Inflation eases in FEB 2022.

    The idea that you need to increase inflation in order to increase aggregate demand is faulty.

  22. MCH says:

    Wolf,

    You must stick with the proper narrative and not confuse your readers with FACTS. 🤪

    The proper narrative with the key words in caps are as follows:

    The Fed’s mandate at this time is to REDUCE THE UNEMPLOYMENT RATE, inflation as shown through CPI is TRANSITORY, and will have no lasting impact.

    Please keep your facts in line with the narrative, also for reference and to combat the misinformation out there. We at the Fed will start to use the term REAL facts, not misinformed FAKE facts.

    Now, carry on.

    😝

  23. OutWest says:

    I’ve seen hotel prices spiking in the US southwest over the past three weeks and it’s not due to the holiday because holiday hotel prices have been flat since the beginning of the pandemic.

    Local economies are opening up so prices are likely to spike higher this summer…especially if adults in the US continue to vax up and crawl out of their caves…

    • ru82 says:

      I saw a recent interview with Warren Buffet. They asked him about inflation and prices rising. He said prices are going up fast. He calls his Nebraska Furniture Marts stores weekly he said.

      He commented, we keep raising the prices but people keep coming and paying higher prices. I think he was under the same thought that Wolf has mentioned…..when will the consumer say enough is enough. But the stores are full and they are doing blockbuster sales.

      I went to one of the Nebraska Furniture Marts a few weeks ago and it was almost as busy as it would be the weekend of black Friday. I ordered a couch but there is a backlog and I will not get it for 3 months. LOL

      • RightNYer says:

        A crack up boom. People keep buying, even though the prices have risen drastically, because they’re terrified they will rise even more.

        • Old school says:

          I find the USA filled with stuff. A free market provides stuff at all different price points. If you are retired or out of work and have time to find cheap stuff at flea markets, thrift stores, the local Fred Sanford.

          Cars and places to live as well have lower end markets if you have time to research. I just bought a Honda 110 Elite scooter like new as a play toy for very little money. It took a lot of time to research best model and to find low mileage one.

          Crap markets are where your choices are tougher like health care and education where the choices are somewhat rigged.

        • RightNYer says:

          Old school,

          Well right, but the problem is, most people have to spend a huge percentage of their income on housing, education, health care and cars, the things that it is much harder to find reasonable prices.

        • yxd0018 says:

          Nobody knows if price is not going up any more down the line as the inflated price is sticky. But I’m interested to know if there is a ratio to show excessiveness in the past.

  24. Phoenix_Ikki says:

    “My gut tells me that some of this will calm down, that buyers will eventually have had enough of this, and sales will dwindle at those prices, and prices would have to come down. But they will likely not go back to where they’d been, but remain significantly higher, and eventually start rising again from there.”

    Wonder if this will apply to housing as well, if that’s the case I guess I am SOL for ever owning a decent place since I refuse to play for a crapshack with a million dollar price tag in questionable neighborhood.

    • Tom Stone says:

      Phoenix, if you are thinking about buying in the US West wait until the fires are well along…at least 2 MM acres over WA, OR and CA combined.
      And anywhere the air is bad will be impacted because this is the new normal.
      Location first, then look for a place that has had a recent price reduction.
      August/September/October will likely when you will see a few (It is always a few) good opportunities.

      • Heinz says:

        “Phoenix, if you are thinking about buying in the US West wait until the fires are well along…at least 2 MM acres over WA, OR and CA combined.”

        As they say, what goes around comes around. I you sure you want to swoop in and buy a reduced price house in areas prone to reoccurring wild fires?

    • makruger says:

      My plan for entering the housing market again is similar to my plan for the stock market. When there is blood in the streets and the majority of people are too scared to even dip a toe back into the market….then it might be a good time to buy. This strategy seems to have worked out OK for Warren Buffet.

  25. rick m says:

    reading investopedia on base effect, it sounds like fedchair powell did too, it’s painfully transparent manipulation of “results” simply by expanding or contracting the timeframe to herd data points to yield the desired impression. It’s certainly high-handed and disdainful of these poseurs to presume simplistic math and stats games will go unnoticed and unchallenged indefinitely. The press is not really that dumb, with djt gone they’re jonesing for blood anyway, and they’re losing patience with his Platitudes-and-Thorazine successor. Somebody is going to have to invent the wonderfulness of this silver lining while base-effecting the cloud out of sight and mind. I think j powell has hidden reservoirs of obfuscation and he’s just warming up. If I hadn’t read this, I would have had no other way of finding out that it was happening, read the April article too, Wolf was on top of this back then. Nobody else was. Can’t read everything, but I think I would have noticed someone else talking about it, the fed and inflation are the most important story in the news short of a shooting war. Fedchair has to talk to Congress on occasion, and he’s running out of euphemisms. Hope they catch him off base, he’s a black hole of integrity.

    • nodecentrepublicansleft says:

      Are you familiar w/the word “paragraph”?

      The press is jonesing for blood? Give me a break, dude.

      The press didn’t crash the US/world economies in the GFD and they won’t this time either. It’s the bankers man and their puppets in the US govt.

      Platitudes and Thorazine?

      Many of us are really quite happy that the NEW President of the United States is NOT pardoning a member of his criminal gang every other day or tweeting stupid BS all night after watching Fox “news” all day.

      What a delusional world you live in….

    • bungee says:

      don’t let what’s his name get to you. i liked your comment.

  26. Paulo says:

    Very good and interesting article. What jumped to my mind is that people only have so much money. In other words, as inflation keeps chipping away at our wallets people start shopping wisely. Carefully. Do without.

    I remember the late 70s, and being the sole breadwinner for our family. We meal planned around the sales flyers. Eating out at restaurants? What’s that? You do what you have to do. The same thing will happen again. It was okay making do back then, and it definitely isn’t the end of the world to watch spending. It can be pretty satisfying to outwit the situation as need be.

    Today was a town run for me and when I ducked into the supermarket inflation was more than apparent. Prices are scary high. But it just so happens I went through the online flyer last night and had my list ready. :-)

    • Tom Stone says:

      Paulo, there has been and will be no recovery for a significant part of the population.
      Call you local food bank and ask how busy they are…
      Or look at the number of tents pitched on sidewalks in any major US Metro.
      Yup, some are spending like drunken sailors but a large number are right on the cliff’s edge financially.
      Wealth will continue to concentrate and the effort to maintain the status quo more expensive ( Thank goodness for the 1033 program!) until things fall apart.
      Not far in the future if you look at how imminent ecological collapse appears.

      • nodecentrepublicansleft says:

        RE: the 1033 Program, are you saying giving under-paid, under-trained cops weapons of war to use against US citizens is a bad idea???

        Are you saying some small town of 2,000 people in BFE Idaho doesn’t need a tank or some flamethrowers?!?!?

        I believe it was UCLA that did the experiment where they gave cops that had been on the job for 6 months the same psychological exam they had to pass to become cops. The result?

        They all failed. The badge and the gun and the power to ruin people’s lives and play “judge, jury and executioner” went to their heads. They literally went “Mad with Power”.

        Yeah, 1033 was always a terrible idea. Thank the MIC.

      • Paulo says:

        I agree Tom. It has gotten very very bad. However, what I would add to your comment re food banks etc is not just inflation and the QE effects, it has been the tech changes for workers. There is simply no room in ‘the economy’ for untrained or poorly educated people. None. When I was a kid on Vancouver Island any hard working male could get a very high paying job logging. Setting chokers at union wage, full benefits. My best friend’s brother was called ‘one shift George’ because he would often work just one 10 day shift and then quit. The big logging company I flew for would hire ‘rummies’ who could do the work. In fact, we had our won dock and fuel in downtown Vancouver Harbour with a full time watchman, fuel, etc.

        When I turned 18 I quit working const for my brother and immediately went to work at a sawmill for more money. A local pulp mill personnel mgr actually phoned me at home and asked if I was looking for work….(my buddy worked there). Guess what, those mills are long long gone, and new ones are highly automated. It takes a degree to even submit an application for employment.

        George died penniless this year. I saw his obit a couple of months ago.

        There is no more work for marginalised people. The logging industry is now high tech and the workers are reliable. It is the same for mining and construction. Add to that the ‘wealth effect’, the assault on public education, and we know have multi generational food bank users and people with nowhere to land.

        Many many here will know people who spent years working at good jobs, high paying jobs that lasted until retirement. And many of those jobs just don’t exist anymore thanks to tech and automation.

        regards

        • Anthony A. says:

          Paulo, I love your historical-type posts. You sound just like my father, and he’s been dead since 1983. He was a coal miner back in the 1920’s…yeah, very poor and unskilled.

      • ATX says:

        So true about food banks. I changed my monthly donations to go to my local food bank last April. I have upped the amount since. They need it. I am not well off as I had 4 kids to raise and wonderful spouse died early but feel fortunate as I have 2 good pensions and high social sec payout. I fear it’s only going to get worse for so many.

    • MCH says:

      Heh, so what you’re really saying is that demand is going to start crashing down if we keep going on with this funny inflation business.

      Well, that’s ok. You’re in Canada, it won’t have that much of an effect on you. After all, it’s not like you guys are locked into USD or something crazy like that. And your boy genius is making all the right moves there. Heck, you guys are even… what’s the word here… tapering?

  27. Beardawg says:

    So this means equities are going to continue to rise for quite a while. Gap widens. I guess it is definitely time to get back in the stock market.

  28. Michael Gorback says:

    Fed funds at 0.06% T-bills maturing past July at 0, SOFR 0.01%.

    I read a story today about people moving to money market funds. That should be an interesting development since these rates are the money market’s playground.

    If it keeps on raining, levee’s going to break.
    If it keeps on raining, levee’s going to break.
    When the levee breaks, have no place to stay.

  29. LeanFIREQueen says:

    Thanks to remote work, moving to LCOL, and dumping my healthcare costs on the shoulders of NIMBYs living in HCOL all I feel is deflation.

    It’s been awesome timing to pull this off it seems :-)

    • You say we’re too many on this planet, but the financial Ponzi requires an increasing population. Every baby born is born to consume. We have to grow GDP, or else it all collapses.

      The obvious way to save the planet is to consume less. By focusing on carbon dioxide, we can consume even more, grow GDP even more, and pat ourselves on the back for saving the environment all at the same time.

      • OutsideTheBox says:

        Compound interest cannot exist without population increases.

        Compound interest cannot exist without without overall economic growth.

        Compound interest ultimately cannot exist in a finite world.

        Compund interest is the lifeblood of the 1%.

        • coalman says:

          And compound interest is the bloodsucker of the ordinary working schmuck. That is why the ” Elite” are always spruiking “growth”.

  30. MiTurn says:

    “The majestic inflation overshoot has arrived.”

    You’re a poet Wolf.

    Just bought more silver, as a hedge against inflation, of course…

    • Michael Gorback says:

      How did you get it? The news I’ve seen is that there’s a shortage. Check out the statement on the US Mint FB page (yes they really have one).

      https://m.facebook.com/UnitedStatesMint/photos/a.331791684458/10159719548979459

      • YuShan says:

        There are no shortages in wholesale market. You can buy near spot in Kinesis (see link under my username) and if you want the metal in your hands just take delivery. Many people are doing this. It’s one of the cheapest ways to get silver.

        • cb says:

          @ YuShan –

          This is the second post I have seen you refer to a link under your name. There is no link under your name.

        • Lone Coyote says:

          @cb click his username itself

        • Michael Gorback says:

          Kinesis isn’t physical. It’s a digital currency allegedly backed by physical. It seems similar to a stablecoin where the value is backed by collateral.

          There are no storage fees and a remarkably low transaction fee compared to Goldmoney and BullionVault.

          In addition they claim to pay a “yield” that is a share of their transaction fees.

          I thought you needed to be a central bank to work that kind of magic.

          I tried to find the exact underlying mechanism for this but without success.

          If the US Mint can’t get silver where is Kinesis getting it?

        • Lisa_Hooker says:

          From the Kinesis offering memorandum link on their website: “Potential investors should be aware that they may be required to bear the financial risks of the Securities for an indefinite period of time and may lose the entire amount applied towards their subscription in the Securities.”

          Reading a prospectus is boring but necessary.

    • YuShan says:

      I’m keeping some precious metals not just as an inflation hedge, but also for income (yield) and as a deflation hedge.

      If we get a massive deflationary bust caused by mass defaults on the current insane debt buildup, it is good to own some liquid assets that you have direct title too, so no counterparty risk attached.

      • sunny129 says:

        Apart from my wife’s jewellery and a few gold and silver coins, I use option play on gold. siver and other commodities. Agriculture will be a long play. Gold & Silver remain volatile. So puts are necssary hedge to balance calls. 1 put for each 2-3 calls (with variable time frame!)

        The arguments for transient inflation vs disinflation/ deflation goes on. With Govt willing to spend 6 Trillions + a year a budget, hard to bet on deflation.

  31. SpencerG says:

    Meanwhile Janet Yellen said today that she sees inflation abating by 2022.

    As the military saying goes, “Hope is NOT a Strategy.” When has there ever been a spate of inflation lasting less than a year while in that same year the government is ramping up deficit spending?

  32. J-Pow!!! says:

    Hahahahahahaha!!!! My evil plan is working quite well!!!!!! BBBBBRRRRRRRRRRRR!!!!!!! I print money and buy treasuries to monetize the debt!!!!!!! My homies in Congress pay me bribes for doing this so they don’t have to have a budget or cut anything!!!!!! I use the bribes to buy hookers and blow!!!!! Hahahahahaha!!!!! But I still don’t know why I am giving treasuries back to the banks now!!!!!! And I read Wolf’s other article and a ton of other articles and some guy’s video where he thinks it’s all about shorting treasuries…BUT NONE OF IT MAKES ANY SENSE TO ME!!!! I don’t know why I am doing this!!!! Maybe I had too much hookers and blow…

  33. drifterprof says:

    I donate a small amount to Wolf now and then because these articles are valuable information for me. I’m retired, and worry about inflation and other economic issues that will impact my savings / assets.

    My primary focus now is on the best strategy to move tranches of my cash to Thailand where I reside (my wife’s credit union pays about 2.75% interest, and inflation of everyday living costs is limited by the large number of people who live hand to mouth, and open-air food markets where individual small business sellers cater to the standard low income folk).

    Last year USD/THB tanked about 10% from it’s high three years ago. Now is back up about 3% from its low, and my main concern is when to transfer. Will the great reserve currency USD tank soon, causing me to lose 5 or 10 percent on the transfer? Timing things seems like being in a casino — I found that out by dabbling in the stock market.

    • Michael Gorback says:

      I was watching an interview with Jeff Gundlach on YouTube today. His thoughts about asset allocation really surprised me.

      He also talked about looking for land and how everything he looked at was already spoken for by the time the realtor called him back.

      Overall, he didn’t seem too optimistic about the future and had no clever ideas on what to do.

      Surprisingly he talked about crypto.

      • Anthony A. says:

        “His thoughts about asset allocation really surprised me.”

        Michael, can you expound on his thoughts, or give me the link to the talk?

        Thanks

    • WES says:

      Drifter:

      I would say forget trying to time currency transfers. Just transfer what you need, when you need it and hope your money outlasts you.

      You don’t need to add currency “timing” risks at your age. Life is just too short!

    • Mojer says:

      I don’t think it’s a good decision to repatriate your capital to Thailand where I also reside, if you see the government incompetent on all levels and foreign companies that don’t invest more in Thailand but in Vietnam or Indonesia the future of the Baht is much more uncertain than the dollar.

  34. Nathan Dumbrowski says:

    What is the end game. 5, 10, 15 years from now. Where would we best be placing our bets? Too young to have seen the last big inflation blowout. My only view is a candy bar used to be $.50 and has gone up since. Slow and steady but always going up like all the costs. So what is the best multi-year bet?

    Great article as usual. Scary that the low-ball tracking CPI figure is even surpassing their expectation

    • Bobber says:

      Forget about getting rich. In this environment, you come out ahead by losing less than the next guy.

    • WES says:

      I can still remember when a roll of life savers was just 6 cents!

      • MiTurn says:

        I remember when machine-dispensed candy bars jumped from 10 cents to 25 cents, because the machines couldn’t handle multiple coins. The candy bar companies compensated by making the candy bars bigger, but definitely not 2.5x bigger. Created a minor sensation at the time.

      • David Hall says:

        When my dad was fighting the Vietnam War in the mid 1960’s a Hershey bar was 5 cents. Truth is the first casualty of war. The gold standard was taken out in 1971. Politicians borrowed and did not pay back. Prices rise and fall, but the long term trend line tells the tale.

        • Anthony A. says:

          When I was there in the mid 60’s, a carton of Camels at the PX was $1.10.

    • Lisa_Hooker says:

      Nathan, for a bit of perspective.
      For all my early youth a candy bar was a nickel.
      For years.
      A few expensive ones like the Mars bar were a dime.
      There were wrapped pieces of candy that cost one penny. Inflation isn’t so slow and steady now.
      Now it’s quicker and erratic.
      The best bet is vacuum-packed hard candy.
      Any candy incorporating fats (e.g. chocolate) won’t keep.

  35. Rcohn says:

    Fed to the dollar
    From Terminator2: Judgement day
    “Hasta la vista baby”

    Fed to the trillions in currency and interest derivatives with counter party risk
    “ Too bad, so sad”

    • Marc says:

      As long as the 800 or so Military Bases can force the rest of the world to trade is USD, the US party keeps on going the rest of the world suffers. That’s precisely the function of the bases.
      Oil is life blood of world economy, food production and everything else.
      We smart monkeys are pericytes killing the host for what? Dinosaurs lasted 100 M Years, what will our corpses feed.

  36. Finster says:

    Wolf you’re batting 1000. Yes this surge of inflation will be “transitory”. It will be followed by another “transitory” surge, and then another all adding up to a not-so-transitory result … until the policy paradigm that created it changes.

    • sunny129 says:

      Expectation of inflation is doing more damage than coming ‘transient’ inflation. Once it goes up. it comes down very little unless there stromg deflation current!

  37. Keepcalmeverythingisfine says:

    The next recession is 18-24 months away, and it will be a doozy. The millennial generation is going to get a taste of job loss, foreclosure, divorce, and all those wonderful things that come with a bad recession. They will deeply regret voting for Jimmy Carter 2.0. The fed has been a bad actor for a couple of decades, but the current administration is going to make the fed actually look pretty tame when it comes to destroying the US economy.

    • Michael Gorback says:

      Can we finish the current recession before we start the next one?

      • Shells says:

        +1

      • Lisa_Hooker says:

        No, the FRB has created an economic matryoshka of recession within recession. Only they don’t get smaller.
        On another note, it’s turtles all the way down.

    • TangoOscar says:

      18 to 24 weeks away, tops. It’ll probably happen simultaneously with the federal reserve rolling out their digital currency. A coincidence, to be sure.

  38. JWB says:

    How many of us predicted a global pandemic that would shut down so much, disrupt the US presidential election, and create this current financial/real estate markets freakshow? On top of all the other stuff that you simply cannot make up? I find myself more and more stunned by the day. I find myself unable to see ahead and unable to figure out a thing other than that planning for normal physics to apply any time soon is likely more of a fantasy than not. Never before has the creedo that anything can happen made more sense to me. These are shocked and awed times.

    • historicus says:

      JWB…
      Central Bankers have inverted reality.
      They push for inflation though they are charged with just the opposite.
      They widen the gap between their interest rates and inflation, stealing.
      They lend to the federal govt (QE) well below the inflation rate.
      They have turned Lender slave to the Borrower.
      They have inflated the stock market (arrangement) and locked up the housing market.
      Powell should be called to answer the violations of the mandates…..and what punishment for such total disregard for the instructions and agreements that allow the Fed’s existence?

  39. zee raja says:

    Never before has the creedo that anything can happen made more sense to me. These are shocked and awed times.

  40. YuShan says:

    Central banks can pretend there is no inflation, but at the end of the day people simply have to cut their expenses to make ends meet after crazy inflation. This will lead to demand destruction.

    Right now people are apparently still buying. Well, what would you expect with government throwing around trillions? This has caused a lot of demand to be pulled forward. Nice setup for a classic boom-bust cycle.

    After more than a decade of competitive currency debasement, I also wonder when the opposite starts: competitive currency revaluation (upwards). Now that we are competing for scarce and limited natural resources, you may want a stronger currency at some point.

    Non-western central banks have been net buyers of gold for some time now, notably China and Russia but also many small and developing countries. The writing is on the wall.

    • historicus says:

      “…people simply have to cut their expenses to make ends meet after crazy inflation. ”

      But those who own homes, stocks, and have tremendous paper wealth will continue to spend hand over fist…..the other group, those with no investments will suffer…all arranged by central planners serving one group at the expense of another group.
      The power of the unelected, unaccountable.

    • MiTurn says:

      “Central banks can pretend there is no inflation, but at the end of the day people simply have to cut their expenses to make ends meet after crazy inflation. ”

      Don’t central bankers shop at stores? Don’t they eat? They have to know that their methodologies are a dodge, for political reasons.

      But then, perhaps even scarier, maybe not…

      • YuShan says:

        These guys are all multimillionaires who don’t do their own shopping. The same is true for most politicians. They live in completely different worlds than the majority of the population.

        • Anthony A. says:

          Try to get a “face to face” meeting with a senator or congressman and see how that goes. Never happen.

      • Lisa_Hooker says:

        Usually the cook does the shopping. Unless the staff is large in which case the senior kitchen maid does the shopping. In either case always within the butler’s budget.

  41. Common Man says:

    The rain is falling and the reservoir is overflowing. The water has crested the top of the dam and is beginning to spill over. At their next meeting, the Fed talks about talking about taking action. At the meeting after that, the Fed says that they will certainly take action at their next meeting. At their next meeting, they take definitive action and send someone up to the reservoir with a 2-gallon bucket in an effort to stop the inevitable flood. If Wall Street doesn’t like it, the Fed will profusely apologize, reverse course, and “promise” to take action next year. We’re all screwed.

    • Wolf Richter says:

      At the next meeting, the Fed will likely raise one or two of its policy rates: the interest on reserves (currently 0.1%) and the reverse repo offering rate (currently 0.0%). The Fed will call these changes “technical” and “unrelated to monetary policy,” or something like that.

      • Lisa_Hooker says:

        Sometimes you have to exercise the machinery a bit just to keep it from rusting in place.

    • I call it the Fed, the garden hose, and the swimming pool. The garden hose fills the pool constantly, slow but steady. The Fed cannot stop the hose when the pool overfills, because the principle of constant flow (confidence) depends on steady action. The players know, even if the pool loses half it’s volume that the garden hose keeps going (and in money terms they can leverage that flow). The first recourse when the pool overfills is to expand the pool, (monetary base). Since there is another 14T in spending waiting in the wings they just need to seqway, get a bigger pool.

    • Michael Gorback says:

      As I referenced above, “When the levee breaks”

  42. Micheal Engel says:

    1) CRM, a member of the DOW, is trending down since Aug 2020.
    2) CRM on May 28 2021, gap up above the cloud, in a black shooting star candle, above the daily channel. CRM closed inside the weekly cloud.
    3) Dr Peter Schwarz, chief scenarios prophet, failed to predict that CRM future HQ will become an abandoned Johnstown PA rusty steel skeleton in the heart of SF.
    4) DR Peter Schwartz in his Rockefeller Foundation letter, in the 2010
    future scenarios, prepared his customers for the next pandemic.
    5) Pg 18 : the pandemic that the world had anticipated finally hit.
    Even the most prepared nations have been overwhelmed.
    6) The pandemic also had a deadly effect on the economy.
    7) Normally bustling shops and office buildings sat empty for months.
    8) The tourism industry was debilitated. The supply chain was broken.
    9) Nation leaders flexed their authority and imposed airtight rules and restrictions, including face masks.
    10) Even after the pandemic faded, this more authoritarian control and
    oversight stuck in order to protect themselves from poverty, terrorism…
    11) The firm grip of a paternalistic state, top down oversight cont…
    12) Hacking and pandemic scenarios from a decade ago.

  43. historicus says:

    Rate of change charts hide the accumulation and compounding.

    • historicus says:

      All those rate of changes should be stacked upon one another to show the real effect.

  44. Todd Miller says:

    Our industry has seen the prices of commodity-based metal roofing increase 40 – 50% since late 2020. The price of higher-end value-added products is up 10 – 20%. Additional increases are still being announced. Raw material suppliers are not predicting a slow down in increases nor an increase in supply until some time in 2022. And yet customers in the construction say “that’s all?” compared to increases they have seen in other building materials. And people keep buying … we’re warning folks that this will not end pretty. Be smart, conserve your cash, what your numbers very closely is our advice to business owners. Thanks for all of your great insight, Wolf.

    • doug says:

      thanks for the roofing videos that help support this site. And the rigging video was really fun to watch as well. Wishing you all the best and appreciate the insight.
      Thanks to Wolf for all the hard work and education you provide…

  45. Keepcalmeverythingisfine says:

    “Inflationary factors abound,” CFO Richard Galanti said on the company’s fiscal third-quarter earnings call Thursday.

    “These include higher labor costs, higher freight costs, higher transportation demand, along with the container shortage and port delays … increased demand in various product categories some shortages, various shortages of everything from chips to oils and chemical supplies by facilities hit by the Gulf freeze and storms and, in some cases, higher commodity prices,” he added.

    The Covid pandemic was not a recession, it was a forced shut down of the world’s economy. What is unfolding now is a real recession caused by our current “leadership.” High inflation, high taxes, high unemployment, high crime rates, shortages, lowered global status, higher vulnerability, currency nightmares, and an administration that rolls out program after program that makes things worse and worse until the typical American can’t take it anymore and votes them out. Jimmy Carter 2.0 and a whole generation about to learn a very, very hard lesson.

    • TangoOscar says:

      He said meat prices were up 20% in the last month alone. That is NOT a typo.

  46. Keepcalmeverythingisfine says:

    COSTCO CFO Richard Galanti that is.

  47. timbers says:

    Low wages at rich companies and inflation.

    This is a follow up to my post yesterday about low wages/short staff at super rich Lowes/BJ’s:

    Again went to Lowes the morning. While waiting in checkout lane I overheard this exchange between the very nice manager I wrote about yesterday, tell an employee who apparently is mentally challenged…

    Manager: “Could you work on putting these items back on shelves?”

    Employee: “I’m working hard!” as he proceeded to do so. A few minutes later as he comes back…

    Manager: “Those items don’t go in the garden center, they belong inside. Can you place them in that bin and we can do them later?”

    Employee: “We’re a team! I’m working hard!”

    Combined with my experience yesterday, I was struck by Lowes a very rich company seemingly using every lever to hold down wages even at the expense of sales, and how well the challenged employee appeared to be at absorbing cheerful corporate indoctrination training to thrive in his position.

    • Tom21 says:

      Rich corporation and poor employees.
      And you went back?

      We are a small business. And we were getting lazy, and buying supply’s from the cheapest sites.

      When gain of function got released on the world, and we got to see corporations essential and mom and pops f’d, it was a wake up call.

      Takes some time to find supply’s at small vendors, but 1yr+ later it is certainly worth it.

      There are alternatives out there.

    • Anthony A. says:

      I was at Lowes several weeks ago in the outdoor garden center. I had three plants in my cart to buy. There are three checkout lines in this area. When I went to check out, only one line was staffed, and there were about 20 people inline there. There was no effort by Lowes to staff the other cash registers that I could see. I stood inline for about 10 minutes and then said “screw this” and left the cart and walked out.

      This was just after the Texas “deep freeze” and garden centers were full of customers. I guess Lowes can’t (or won’t) find help for their stores. Nuts.

      • VintageVNvet says:

        Went to Lowes this morning to check out recent comments, as it is HOT here now and laborer ( me ) is very heat adverse:
        Store well stocked, plenty of personnel were friendly and helpful with correct locations for what we were looking for.
        Prices may have been up on some stuff, but the stuff we purchased was same prices or a bit lower for fertilizer for mangos and other fruits.
        Cashier was polite and competent, just a couple folks in each line,,,
        Other than way way too hot outside, experience was overall good.
        Of course, the cashiers always are more friendly when I give my vet discount number and treat them as human beings!

      • Swamp Creature says:

        That’s why I shop at Home Depot. Much better customer service. I have a credit card with them, and spend a lot there.

  48. Chris Herbert says:

    Just curious but does anyone know how a Central Bank stabilizes prices? Operationally speaking. I can see that by raising interest rates it can create a market decline in financial assets, but does that stabilize prices in the economy? If there is a supply collapse in food or whatever, prices will go up. That’s what happened in Zimbabwe.

    • Wolf Richter says:

      The idea is to slow down demand. Part of the phenomenon of consumer price inflation is psychological — what I have been calling recently the inflationary mindset.

      If the central bank raises rates, brings down asset prices, and tells people all along that we’re going to keep doing this until inflation is back down to 2%, eventually the mindset will change and people will refuse to buy cars whose prices have shot up, and they’ll try to find cheaper rents, etc., and this shift in demand is expected to cause companies to be more careful with price increases.

      If a central bank does this early enough in the game, it works fairly well, but might cause a mild recession. If the central bank waits too long and has to then crack down hard, it might cause a big recession, such as the double-dip 1981-1983 monster.

      • sunny129 says:

        ‘If the central bank raises rates, brings down asset prices’

        really!?

        They just cannot afford that luxary. Fed has two choices – Inflate or collapse, no more ‘DIAL’ option!

        If the OIL keeps going up above $70-75, how does it affect the Economy. Guess wait & see!

      • Ross says:

        Thank you Wolf. A simple and clear answer to an innocent real question. This why I come here.

  49. DR DOOM says:

    More free money is on the way. There is no other way for the US. Empires do not pause, reflect and correct.China will keep sending us its production and keep printing the yuan (RMB) to exchange for the dollars we send them . This will keep the US in a slow slide of dependency into the shitter. It will be an act of war when China reverses this relationship and the yuan will no longer will be (inflated) printed to swap for dollars . China will demand to exchange dollars to yuan in the Forex which will explode the yuan from around 3% of reserves in the Forex to 30 or 40% . China will not do this untill we are weakened sufficiently by its stuffing our gullet with its decreasing and irregular supply and increasingly poor quality production. Why fight the Tiger if you are feeding it ? If an insulated hill billy like me sees it our government sees it. One has to wonder if there is a Patriot left in DC. We are back where we started 250+ years ago in Samuel Adams watering hole talking about sedition against the Crown and its Empire.

    • fred flintstone says:

      They see it all right…..they created it……purposely.
      Corporate and personal wealth in this country have decided to subvert the system.
      They have their boats, Gold, Cryptos and homes in the Caymans all set for the grand goodbye.
      As corporations begin to see a good deal of their revenue stream come from foreign sources and a majority of their production also non US the US turns into nothing more than the military force used to protect their investments. They have no patriotic ties. A majority of their executives will soon be non US. Ownership…..is slowly becoming non US as huge trusts overseas buy our markets to repatriate dollars.
      So….our foreign entanglements will never cease….with always a good reason created by the administration (similar to Hitler being attacked by Poland)………until the grand goodbye.
      Which will be triggered when our bankrupt country can no longer afford the military. A wealthy Europe (nice trade surplus) or India etc. with population to burn will emerge as the military peace keeper.
      The US population, due to our fine agricultural area, work ethic, stability etc. will receive a substantial reduction in standard of living…..but…..we will still live marginally better than the majority in the world.

  50. Spencer Bradley Hall says:

    Readers should note that calculating inflation on a year-to-year basis minimizes, over time, the rate of inflation — since the rate is being calculated from higher and higher price levels. A $ today, using 1967 (a former base year), is equivalent to $8.12 of consumer purchasing power today.

    In absolute terms, each year confronts all of us with a higher and higher level of prices with no end in sight.

    That as compared to the minimum wage of $1.40 in 1967 is now $7.50 which represents a 4.4% gain in purchasing power (a case for UBI).

    • VintageVNvet says:

      The $10 per hour I made mowing lawns in 1958 had the same buying power as $92.41 in April 2021.
      No wonder I can no longer find any teenagers to mow my lawn for $10, eh???
      Seriously folks, especially any one under 75,,, please prepare to do without, as my family did in the 1950s,,, and work harder than ever for what it takes just to eat and have shelter.
      No matter what,,, don’t take it too seriously cause we are all going to die; and that is exactly why some wise folks over the centuries recommend highly meditating in cemeteries until you ”accept you are going to die;” and say that is when you really become alive.

      • Anthony A. says:

        VVN…?????……I didn’t think anybody made $10/hr on 1958…are you sure you made that kind of coin back then as a young boy?

        • Lisa_Hooker says:

          I concur. No kid made $10/hour in 1958 unless he was working for his father or an uncle.

  51. Fred Flintstone says:

    Within about a year or two….a press conference will be held.
    Jay P will address the US on a matter of grave importance.
    We at the FMOC are shocked…..mine you…..just shocked…….. to learn that systematic inflation in occurring in the US. We’ll round up the usual suspects.
    The only difference between movie Casablanca and the current US being that Jay should be dressed in the uniform of an SS officer.

    • Anthony A. says:

      They will blame everything on Trump! No one of the current administration will be blamed. Some will get medals and promotions. J Pow will get the Nobel prize in economics. His picture will be hung in the White House next to Obama’s. Trumpets will sing his praise. Another Stimulus check will be sent to all who click on his Facebook page.

  52. Micheal Engel says:

    1) PCE poke the eyes.
    2) The economy is “hot”, the economy is strong nothing can go wrong.
    3) When the primary dealers smell the toxic stench, and suspect
    toxic clogging, they will keep treasuries for themselves, despite the imposed penalty.
    4) When primary dealers don’t care the rehypothecation go on O/N.
    5) When they DO care, they will keep their treasuries for themselves.
    6) Extreme shortages of collateral will hit the market.
    7) The value of good collateral will suddenly poke the eyes. The primary dealers keep them in their treasuries in their pockets. No hypo in the market. The market is clogged !!!
    8) The plumber is late.
    9) That’s why JP preempt.

  53. Micheal Engel says:

    10) Pig cooking on memorial day.

  54. Swamp Creature says:

    My local grocery chain just changed the packaging of Laundry Detergent to implemented their shrinkflation policy.

    Original price

    100 fluid ounces price $11

    new packaging

    50 fluid ounces price $7

    That amounts to an increase in price from $11 to $14 for the same amount of detergent. This is being done with other items especially non-food items. Explains why my food & grocery bill keeps going up even though I am not buying any more and am if fact buying less.

    • Anthony A. says:

      You need to start making your own soap. Real Americans did that 200 years ago. Find a U Tube video and get on it. It’s patriotic.

  55. Saylor says:

    Both my wife and I are retired. Me…, by need of staying home to take care of her (considered mild dementia at this point but she cannot be left alone)
    We both had good jobs.
    They went away.
    We changed career paths. Did okay for awhile but health care costs wiped us out.
    Now totally on fixed incomes which I have seen ‘much more’ is being swallowed up than even 1 year ago. She just had emergency surgery for a gall bladder. Even with the Medicare and supplement…, I going to receive a big bill.
    We are screwed.

    • Anthony A. says:

      Sorry to hear Saylor. I’m in a similar boat. My wife has advance COPD and is on Oxygen 24/7/365, and not very mobile from the physical deterioration having less and less O2 absorption brings.

      Something has to change for many seniors in this country, but no one seem to care or has any effort going on.

  56. Saylor says:

    They hid inflation before/during/after the GFD by reducing the content/weight of products but keeping the price fixed. The inflation story has been running ‘hot underground’. Now they are raising prices AND reducing content.
    The current administration IMO has succeed in the economy from crashing by keeping the velocity of money ‘up’ with the stimulus. But the inflation from that is inevitable. Too bad the previous decades used that tool in excess to keep the 1% happy rather than keeping the powder dry for times like this.

  57. Auldyin says:

    I’m getting lost on all these different indices. Although I think it’s safe to say they are all up fairly substantially.
    I worked on UK indexation in the 70’s, mine was construction.
    Every sector had an index which was relevant to their activity, but when we went to ‘Head Office’ the Wonks told us, thanks for your input we’ll put it into the ‘Gdp Deflator’ and get back to tell you if you’re running ahead or behind core inflation. We then knew if our sector was being screwed by ‘excess profits’.
    The reason the Gdp Deflator was so important, was that it was the one factor that connected the ‘Real’ economy ie physical goods and services to the ‘money’ economy ie money aggregates as expressed in the equation c+i+g+(e-i)=v*p where p for the current date was corrected to p at the base date many years ago by the Gdp Deflator. You thus knew if growth was real or inflationary.
    Your ccurrent index cannot be the gdp deflator because you say there is stuff left out.
    ‘Boom Bust’ on RT had a graph with Gdp deflator on it I think, and it was over 5% but I can’t just remember. Very unusual to see Gdp deflator quoted in media but it trumps all other indices for the Wonks.

  58. yxd0018 says:

    Wolf, what do you think about apartment rental increased 5% in May by Apartment List?

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